Survival Tactics for the Here and NowBy Garry Bartecki
Article Date: 03-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.
Never mind about your P's and Q's - the three M's are what you need to master for cash flow.
Today I want to explain to you the three Ms – measure, manage, and manipulate – and how following them is currently the way you must manage your business. Short-term goals seem to be the only goals we have available to us. And short-term may be daily, weekly or monthly. Until we have a better understanding of what is happening in our markets there is not much long-term planning we can do.
One business/market talk show was recently discussing the new stimulus package and explored whether executives would start hiring people when the stimulus funds are released. The consensus was: Probably not. How come? Because they have no way to reasonably project future business, which is something they were able to do during the last two or three downturns when we were dealing primarily with inventory issues. This time, however, business just stopped. One day things were moving along, and the next day activity ceased, with no one able to project what has to happen to turn things around. It’s like running in the fog – you can speed up but have no idea where you’re heading, which may be toward a cliff!
Thus we have to realize we are operating in a short-term, survival mode in which daily activities have to be measured, managed and manipulated in
order to maximize cash flow.
If there ever was a year to participate in AED’s Cost of Doing Business Report, this is the year. As a participant you receive a custom report for your dealership that highlights areas needing improvement. The survey to participate is available on AED’s Web site at www.aednet.org/codb/index.cfm, and takes about an hour and a half to complete. Dealers can use their preliminary year-end numbers or even the November 2008 numbers for the survey. Call us if you have questions or need help.
The “lean” concept has been tossed around for a number of years but is certainly a necessity in today’s business environment. Getting lean is where the managing comes in. For example, consider implementing a 100 percent absorption program. How do you do it? What will you need to make it happen? What resources, if any, will need to be reallocated to product support?
Once you decide on an absorption program you have to model it up. Not an easy task, but one you can deal with using certain AED programs and publications. AED’s new “Test Drive” dealer simulation workshop can help a lot because actions are converted to reflect balance sheet changes, income statement changes and cash flow changes. Go ahead and change sales expense and estimate the effect on sales and margins. Go ahead and beef up the service department and see how long it takes for these changes to provide the billable hours you are looking for. Make changes in the parts department to implement better parts/service interaction. Reduce G&A expenses by playing with your
individual expense lines. Put it all together and see if your efforts, as you have them planned out, generate the profits and cash flows you need to meet your plan.
“Test Drive” also allows each of your strategic department heads to simulate the changes they need to make in order to reach desired results. All department heads working together will have to analyze actions and reactions to meet absorption goals. If they can’t, it’s back to the drawing board. Now think about this: Would it be better to go through this process over 12 months to find out your plan does not work, or over two days using the simulation model? No contest.
Also, AED and BDO Seidman LLP are presenting our annual CFO Conference in Chicago on May 21-22 and in Nashville on Oct. 15-16. This year we are keeping the current state of the industry in mind with topics to keep dealers out of trouble. There will be a major new tax bill. There will be discussion on applying the new U.S. and International Accounting Rules so as to avoid covenant violations. Absorption calculations and implementation will be covered. Valuations will be discussed, and an economic update provided by Eli Lustgarten. Fun for one and all!
It is time to rethink how the business is run and what policies you need to introduce to get buy-in and an understanding of what you are doing and why. Nothing is sacred. You do what you have to do to reach the turnaround. You do things you thought you would never have to do. You do more with a lot less people.
This is a tough time, and believe me when I say that AED is here to help you ride out the storm. If we can’t help you, we can direct you to someone who can. You have a lot of decisions to make in a limited timeframe. If there’s anything we can help you with, please call me.
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